Banking News

Trade war rhetoric ramps up

(10 September 2018 – China) US President Donald Trump has ratcheted up ‘trade war’ rhetoric against China by threatening to impose higher tariffs on China’s export goods by stating that the US is ready to tax all imports ‘at short notice’.

President Trump is prepared to apply tariffs on an additional US$267 billion in Chinese goods, on top of duties of US$200 billion in imports already in consideration. The US has already enforced duties on US$50 billion of Chinese imports in the last two months, leading to immediate retaliation from Beijing. China has said it would be forced to retaliate to all of the US’s tariff measures, escalating concerns that a deepening trade war could negatively impact the global economic outlook. Although experts find it difficult to quantify the full impact of trade wars on merchandise and trade financing volumes, the effect on economic confidence may be significant according to PBoC Governor Zhou Xiaochuan. China posted a smaller overall trade surplus of US$27.9 billion in August, down slightly from US$28.1 billion in July.

China’s export growth slowed in August as imports again increased strongly, narrowing the size of the country’s trade surplus. Interestingly official trade data for last month showed the trade surplus with the US grew in August, despite tariffs imposed by President Donald Trump as exports jumped 9.8 percent year-on-year, down slightly from July’s 12.2 percent rate. China’s trade surplus with the US is estimated by Bloomberg to have expanded to US$31.1 billion despite exports climbing at the slowest pace since Q1 2018. China has announced measures to support some of the exporters targeted by higher duties. The Ministry of Finance said it will raise export rebate rates for 397 goods so that businesses trading certain products internationally will pay less value-added tax. The new rates will be effective from 15 September.  

Despite a shift to policy easing, falling export growth is expected to apply increasingly stronger pressure on Beijing to act. Because value-added exports contribute about ten percent of China’s GDP, the incoming export slowdown indicates it may take longer for China’s growth to recover. The “Made in China 2025” program planning to develop new, high-tech industries to compete with and eventually replace foreign rivals at home and abroad is timely, making it official policy to limit overseas involvement in the domestic economy. Even more, China’s economic program is aimed at developing export markets other than the US. President Trump frequently cites the US trade deficit with China as a major issue.

“Levying duties on all Chinese purchases would hit every aspect of our American lifestyle. The clothes that we put on our back, the food that we eat, the cars that we drive, the shoes that we wear” stated Hun Quach, Vice President of International Trade for the Retail Industry Leaders Association.